The draft Cap Licence Regulations

Introduction

On 20 December 2023, the Department of Energy, Environment and Climate Action (DEECA) opened public consultation on the Circular Economy (Waste Reduction and Recycling) (Waste to Energy Scheme) Amendment Regulations 2023 (the Draft Cap Regulations). The public consultation period closes on 2 February 2024.

The Draft Cap Regulations constitute the second stage of the WtE Scheme Regulations. Following the commencement of the Draft Cap Regulations, set for 17 April 2024, DEECA has indicated that Recycling Victoria will begin discussions with proponents with a view to commencing the Expression of Interest (EOI) process for cap licences in the second half of 2024.

The Draft Cap Regulations will be made under the Circular Economy (Waste Reduction and Recycling) Act 2021 (CE Act). The Draft Cap Regulations build on, and amend the first stage of the regulations, the Circular Economy (Waste Reduction and Recycling) (Waste to Energy Scheme) Regulations 2023 (the Existing Regulations), which commenced on 1 June 2023. See our previous updates on the CE Act here and the Existing Regulations here).

The Existing Regulations deal with licences under the Waste to Energy (WtE) Scheme for existing operators (i.e., WtE facilities or project operators who held environment or planning approvals prior to the WtE framework being released on 21 November 2021) (Existing WtE Facilities). Recycling Victoria is now administering this first stage of the WtE Scheme.

The CE Act introduced the concept of a cap limit, being the prescribed maximum aggregated (in tonnes per financial year) of permitted waste that may be processed by thermal WtE facilities in Victoria (the Cap Limit).

This legal update provides a snapshot of the Draft Cap Regulations which:

• set the level of the Cap Limit to 1 million tonnes; and
• outline aspects of the cap licensing process, including:
  • fees for new or expanded thermal WtE facilities; and
  • prescribing information the Head, Recycling Victoria must take into account when making decisions on EOIs for applications for cap licences and cap licensing.

Overview of Victoria’s WtE Scheme

The WtE Scheme is a part of Victoria’s reform to drive a sustainable and thriving circular economy and is enshrined in Part 5A of the CE Act. The WtE Scheme is designed to reduce waste sent to landfill, while prioritising waste avoidance and recycling.

Under the CE Act, thermal WtE operations processing permitted waste must hold a licence. The WtE Scheme provides for two types of WtE licences:

1. Existing Operator Licences (EOL) are reserved for thermal WtE operators that are either operating already or had appropriate approvals in place before November 2021. EOLs are not required to fit within the Cap Limit unless an existing operator seeks to increase the amount of permitted waste that can be processed at an existing facility.
2. Cap licences will be required for any new thermal WtE operators intending to process permitted waste in Victoria, including expansions to Existing WtE Facilities.¹

Key aspects of the Draft Cap Regulations

Existing operators

While EOLs do not form a part of the Cap Limit, if an existing operator seeks to increase the amount of permitted waste (or capacity) it can process, this change would be subject to the Draft Cap Regulations. To increase the amount of permitted waste processed at an Existing WtE Facility under an EOL, the operator would need to be invited by the Head, Recycling Victoria to submit an EOI for an increase in the amount of permitted waste.

Under the Draft Cap Regulations, to have a cap licence issued to increase the amount of permitted waste processed at an Existing WtE Facility the full licence fee will apply.

Cap Limit

To prevent over-reliance on WtE, the CE Act provides for a Cap Limit on the total amount of waste that can be thermally processed through new or expanded licensed WtE facilities. The Cap Limit complements strategies that reduce waste and increase recycling in the long term, enabling a mix of investments and innovation in Victoria’s transition to a circular economy. The Draft Cap Regulations sets the level of the Cap Limit at 1 million tonnes per financial year, with the analysis in the Regulatory Impact Statement providing the rationale for the limit.²

In an attempt to strike a balance between support for appropriate WtE investment in Victoria, whilst concurrently encouraging long term circular economy and emission reduction outcomes, the Regulatory Impact Statement proposed three options for the Cap Limit, ranging from 500,000 tonnes to 2 million tonnes.

The assessment of those options focused on several key criteria, including:

1. maximising the amount of waste diverted from landfill to WtE;
2. ensuring WtE operations do not displace reuse or recycling; and
3. establishing an effective and transparent regulatory cap licensing process that supports the achievement of these objectives and ensures WtE investment in Victoria, among others, contributes efficiently to Victoria’s waste and resource recovery infrastructure.

In determining the proposed Cap Limit, the Regulatory Impact Statement analysed a forward estimate of waste flows in Victoria and considered how much suitable, available and permissible waste there may be for use under the WtE facilities. Accordingly, various assumptions regarding technology, consumer behaviour and policy were made to inform this analysis. These assumptions are set out in the Regulatory Impact Statement and DEECA is seeking feedback on whether these assumptions are reasonable. The Regulatory Impact Statement suggests that a cap of 1 million tonnes ensures the maximum value of materials is maintained without compromising future innovation and recycling outcomes, and promoting WtE to reduce use of landfill and extraction of virgin materials.³

Mandatory considerations

The Draft Cap Regulations specify matters that the Head, Recycling Victoria must consider when determining:

1. an applicant's EOI to apply for a cap licence (including an application for a cap licence to increase the capacity for an Existing WtE Facility with an EOL) or an increase in the allocated cap amount specified in a cap licence;
2. an application for a cap licence; and
3. if the application relates to a critical waste infrastructure project procured by South East Metropolitan Advanced Waste Processing Pty Ltd, the desirability of that project meeting the corresponding critical need through the operation of WtE facilities related to that project.

Mandatory considerations: EOI

The invitation by the Head, Recycling Victoria to an applicant to submit an EOI must set out the information that must be provided to Recycling Victoria.

In considering an applicant’s EOI, and determining whether an applicant may proceed to submit an application for a cap licence, the Draft Cap Regulations require the Head, Recycling Victoria to consider:

1. the information provided in the EOI; and
2. details of any application for any other permit or licence under the Environment Protection Act 2017 (EP Act), the Planning and Environment Act 1987 (P&E Act) or any other law in or outside Victoria in relation to WtE, or waste and recycling with respect to the facility and the details of the determination of these applications.

If the applicant holds either an EOL and seeks to increase the amount of waste it can process, or a cap licence for a facility, the RV must also consider:

1. information in the applicable EOL or existing cap licence;
2. any advice or information provided to the Head, Recycling Victoria by the EPA in relation to the applicant’s non-compliance with any development and operating licence for the facility;
3. any permit or licence issued under the EP Act or P&E Act in relation to the facility, including any existing waste processing authority and any modifications or variations to that authority; and
4. any permission conditions that apply to the applicant in relation to the facility.

The Head, Recycling Victoria may also request any additional information it deems necessary.

Mandatory considerations: Cap licence

The Draft Cap Regulations prescribe matters the Head, Recycling Victoria must take into account when deciding whether to issue a cap licence. These mandatory considerations aim to provide a consistent, transparent and fair mechanism for Recycling Victoria to administer cap licensing; direct market engagement and investment towards promoting best practice WtE operations; and to provide certainty in investment decision making.

The mandatory considerations include:

1. the information provided in the EOI;
2. the information provided in the cap licence application;
3. advice or information provided to the Head, Recycling Victoria by the EPA about any environmental or compliance risks posed by the facility;
4. the extent to which the distribution of WtE facilities enables the facility to contribute to an efficient waste infrastructure system (including the facility’s proximity to any waste feedstocks and offtake destinations for energy and other output products);
5. the source, composition, material type and weight of permitted waste and exempt waste (in metric tonnes) proposed to be processed over the projected lifetime of the facility, including the extent to which the facility can accept changing feedstocks;
6. the commercial and technical viability of the energy recovery process or technology proposed to be used at the facility;
7. any information provided to the Head, Recycling Victoria about whether the applicant has obtained environmental, planning, safety and other permits or licences associated with operating the facility;
8. any planned, completed or ongoing engagement activity with interested stakeholders, including the local community and any relevant traditional owners; and
9. any economic, social and environmental costs and benefits associated with the facility including employment opportunities through construction and operation of the facility and the energy products the facility will produce.

Mandatory considerations: Critical waste infrastructure projects

The Draft Cap Regulations identify the South East Metropolitan Advanced Waste Processing Project as a critical waste infrastructure project, given the critical need for additional processing due to the closure of the Hampton Park Landfill. If an application for a cap licence is made that relates to this project (or future other critical waste infrastructure projects identified in regulations), then the Head, Recycling Victoria must also take into account the desirability of the project meeting the critical need identified through a WtE facility, when making a decision on issuing the cap licence.

Proposed Fees

The Regulatory Impact Statement proposes three options for fees that partially cover Recycling Victoria’s regulatory costs associated with cap licensing regime. The options are in line with the pricing principles in Victoria’s Pricing for Value (2021) Guide. The options included a flat single fee structure, two pricing levels for large and small facilities, and a sliding pricing scheme relevant to the development costs of the facility.

After a multi-criteria analysis, as set out in the Regulatory Impact Statement, the Draft Cap Regulations prescribe the relevant fees for different application types, differentiated on facility size, as set out in the table below.⁴

Table E1: Proposed fees

Decreases in the allocated cap licence amount

The Head, Recycling Victoria may decrease the operator’s cap licence amount, if the operator is consistently processing significantly less permitted waste than their allocated cap amount, or upon application by the licence holder itself (in which case an application fee applies).

If the Head, Recycling Victoria proposes to decrease the cap licence amount, the Head, Recycling Victoria must first provide written notice of a proposed decrease in an operator’s allocated cap amount and must consider any response made by the licence holder. If the Head, Recycling Victoria nevertheless elects to decrease the operator’s allocated cap amount, it must provide a written notice of the amended maximum amount of permitted waste that can be processed each financial year. This decrease takes effect on the day on which notice of the amendment is given or a later day specified in the notice.

If the licence holder applies for a decrease in the allocated cap amount, then the applicant must provide the Head, Recycling with the following information:⁵

• if the applicant is a natural person - the applicant’s name, address and photographic proof of identity (such as a valid driver’s licence or passport);
• if the applicant is not a natural person – company registration and control details such as the Australian Company or Business Number; address of the entity, and the name and number of any directors, CEO, CFO, secretary or other officer who has control or substantial control over the management of the business; and
• a statement setting out the proposed decrease to the allocated cap amount specified in the cap licence and why the decrease is being sought.

In determining whether to grant an application to decrease the allocated cap amount, the Head, Recycling Victoria must take into account:

• the information provided in the application to decrease the allocated cap amount; and
• whether the applicant has previously applied to decrease the allocated cap amount and, if the application was determined, the details of the determination and decrease made, if any.

The Head, Recycling Victoria may also take into account any additional matter it considers appropriate.

If the licence holder makes the application for a decrease in the allocated cap amount then the prescribed application fee is payable. This fee is designed to disincentivise prospective WtE operators from oversubscribing to a cap amount in their initial cap licence application. Section 74ZF of the CE Act enables the Head, Recycling Victoria to revoke a WtE licence if the Head, Recycling Victoria is satisfied that the licensee has demonstrated a pattern of processing an amount of permitted waste under the licence that is significantly less than the allocated cap amount.⁶

Anticipated future guidelines

Further guidance for potential cap licence applicants about what information must be provided in an EOI and, if the applicant’s EOI is successful, what further information is required for the cap licence application to supplement that in the Waste to Energy Framework is expected to be provided before the Draft Cap Regulations commence. DEECA is currently seeking feedback on whether the mandatory licensing application considerations will help the Head, Recycling Victoria make well-informed licensing decisions.

It is also anticipated that further guidance regarding reporting requirements and licence conditions will be provided by Recycling Victoria before the Draft Cap Regulations come into effect.

Timing and next steps

Consultation on the Draft Cap Regulations closes on 2 February 2024. You can participate in the consultation by completing a survey or uploading a written submission on the Engage Vic website. Specifically, DEECA is seeking feedback on:

1. the findings of the Regulatory Impact Statement;
2. the cap licence application process; and
3. the associated fees.

The Draft Cap Regulations constitute the second stage of the WtE Scheme Regulations. Following the commencement of the Draft Cap Regulations, set for 17 April 2024, DEECA has indicated that Recycling Victoria will begin discussions with proponents with a view to commencing the EOI process in the second half of 2024. Public consultation is also expected to open for a third stage of regulations, which will be in relation to the amount and frequency of prescribed periodic fee payable by holders of cap licences and existing operator licences.

If you would like more information on how the introduction of the Draft Cap Regulations might affect your existing operations or future projects, or would like assistance with preparing a submission to DEECA, please contact a member of our Environment and Planning team.